Since past few months, the housing industry in United States has been garnering some dismal numbers. As housing sector continues to struggle for 6th straight month in majority of big cities in US, there are not many bright spots in the dark. But, as the property values continue to plunge, people are considering the option to lower their house insurance coverage. However, people fail to consider that their insurance covers the replacement cost of the home and not the market value of their home.
Home replacement cost and market value are two completely different concepts. Market value is the price at which something will sell within some definite time period. So, let's say winter jackets will cost around $100 in winters and if they don't sell out in the season, the store will lower the price and by the time spring arrives, the jacket may cost around 50% of the initial cost. So, market value may be defined as the price at which your house will sell in its current condition, in around 1-3 months. The market value also includes the land on which your house is set up. On the other hand, house replacement cost includes just your home minus the land. Replacement cost is calculated on the basis of current rates in your neighborhood.
Over the past few years, construction costs have sky-rocketed whereas home values have gone down significantly. Thus, many house owners believe that they have sufficient insurance coverage whereas they are actually under-insured. So, in these times if you want to estimate the insurance coverage you need, opt for a home insurance calculator or a home insurance agent who will determine the approximate coverage your house needs based on the average cost of construction in your area and the size of land your home stands on. Also, make sure that you convey every possible detail of your home building including building material, style of the house, finished square footage and other necessary details. This will help in estimating the exact replacement value of the property.
Also, whenever you update your home, the replacement costs of your property may go up. Thus, whenever you renovate your home or indulge in any substantial home improvement tasks, make sure that you review the coverage listed in your policy.
Although, it may seem straightforward, there are many twists and turns which may affect the overall cost. So, make sure that you research a lot and get in touch with as many property experts as possible before you make any decision.